Bankers' panel suggests 5-pronged strategy to tackle NPAs, no proposal to create a bad bank

Presenting the report at a media briefing Interim Finance Minister Piyush Goyal said, "The NDA government has brought transparency to the issue of NPAs. A comprehensive and holistic plan on creating credit capacity has been submitted to us by the Sunil Mehta Panel."

The report recommended the resolution of bad assets below Rs 50 crore within 90 days. Banks will need to a create ‘Focused Vertical’ for bad assets below Rs 50 crore and set up a steering committee. It suggested a resolution of such bad assets within 90 days.

The panel proposed a resolution of consortium loans between Rs 50-500 crore within 180 days. It suggested setup of an independent screening committee to vet resolution of Rs 50-500 crore within 30 days and if there is no resolution in 180 days then these bad assets to be moved to the National Company Law Tribunal (NCLT).

Loans above Rs 500 crore, the panel suggested, be dealt via AMC/AIF-led resolution process. The panel proposed a national asset management company (AMC) to take over non-performing assets (NPAs) from banks.

The committee suggested setting up an AMC with an equity contribution from banks, foreign funds and infrastructure funds such as the National Infrastructure Investment Fund (NIIF).

Among about 4-5 options, the AMC could be set up under an existing asset reconstruction company (ARC) like Arcil Ltd which is already promoted by banks, a source said.

Interim finance Minister Piyush Goyal in early June set up the Mehta-led committee giving it about two weeks to look at the feasibility of a ‘bad bank’-like structure. After buying some more time, the panel of bankers submitted its report to the government before Goyal on Monday.

Once the government approves it, banking regulator Reserve Bank of India’s (RBI) nod will also be taken.

Under the proposal, the National AMC determines the price of individual accounts after due diligence and once the asset is sold, turnaround specialists would be appointed. The asset would be sold down to strategic buyers over a period of time.

Rajnish Kumar, Chairman of SBI, earlier had said the report would be submitted to the government by evening.

The plan to set up a national ARC or AMC over and above existing private ARCs and stressed asset, funds come amid the mounting bad loans in the system leading to bleeding balance sheets of banks.

As on March 31, 2018, bad loans across listed banks stood at over Rs 10 lakh crore.

As per the RBI’s recently released Financial Stability Report, the number of gross NPA ratio is set to rise by March 2019 to 12.2 percent from 11.6 percent in March 2018.

Time and again, bankers have suggested the need to take the function of NPA management out of the banks or them to focus on core banking activities of lending and growing their balance sheets. Further, tight scrutiny on banks’ senior management by various investigative agencies on their decision making and the prompt corrective action (PCA) imposed by the RBI has restricted the lending and expansion of the business.

“If all our decisions are questioned by the authorities, how can we make decisions? This has slowed down the loan sanctioning process,” a senior banker said.

Moreover, recovery management has taken a toll on them given the economic conditions of many businesses of large corporates and also defaulters having their way because of the power and wherewithal of promoters.

The banker said, “Transferring NPA management to a specialised entity would help clean up the long due loans and experts can help restructure the loans.”

Also Read: Will 'bad bank' be good for the banking sector?